Policy circles are abuzz with news about Arkansas Governor Mike Beebe’s creative plan to expand Medicaid under the Affordable Care Act. While details are sketchy and there’s no official federal approval yet, the basic idea is to use the federal funding for Medicaid expansion (100% in 2014-2016, no less than 90% thereafter) to buy private health insurance coverage – presumably through Arkansas’ federal-run Health Insurance Exchange (HIX) – for those low-income adults newly covered under Medicaid expansion.
Affordability – for the federal government and those newly insured – is the one question that is baffling reporters and wonks the most. And on the face of it, this may be the toughest obstacle for the Arkansas model to lead to large numbers gaining coverage. It boils down to the fact that commercial health insurance coverage – whether in the traditional pre-ACA group insurance marketplace or qualified health plans (QHPs) in the new Exchanges – are far more expensive than Medicaid coverage. This is largely due to the far lower provider rates in Medicaid. Commercial insurers pay providers more and those higher costs show up in higher premiums and cost sharing.
While pricing competition may mean lower premiums in the Exchanges, the QHPs offering coverage in the Exchanges will still cost more per capita than Medicaid coverage, especially coverage provided through Medicaid health plans. Therefore, the assumption is the Arkansas model – by relying on commercial-like Exchange plans rather than Medicaid health plans – would cost far more than providing care for the newly insured through the lower priced Medicaid delivery system. Those higher costs would be passed along to the federal government or the low-income consumers. Either federal taxpayers would end up with a much higher bill or low-income adults would face high, likely unaffordable premiums.
However, there is a way for Arkansas and CMS to keep premiums and cost sharing in line with traditional Medicaid-level pricing.
For the new Health Insurance Exchanges, health plans (the QHPs) wishing to sell coverage in the new market must follow an elaborate actuarial process to set premiums. The first step is to determine the expected actuarial value of the essential health benefit package. QHP will use a CMS tool for this step. A health plan’s expected actuarial value for the benefit package (which will be the same benefit package for the Medicaid expansion population) is driven primarily by provider rates and secondarily by the effectiveness of medical, utilization, and network management.
My idea is simple. For the ACA Medicaid expansion enrollee population, Arkansas or CMS could direct that Exchange plans calculate the actuarial value separately, using prevailing Medicaid provider rates in lieu of commercial rates. The QHPs that are not already Medicaid health plans would need to negotiate a two-tired rate schedule with their provider network – one for consumers at the Medicaid eligibility and the other for all other Exchange consumers. This should not be too radical since commercial insurers are already negotiating separate, lower rates for the Exchange line of business.
This would normalize the premiums and cost sharing for the Medicaid expansion population, likely resulting in nominal premiums and cost sharing for the newly insured adults with incomes below 138 percent of poverty. As the Arkansas proposal envisions, the new Medicaid eligibles would still apply for coverage through the CMS-run Exchange and select from among competing plans, but the actuarial basis of their premiums and cost sharing would the Medicaid cost structure, not the commercial pricing.